TY - JOUR
AU - Goolsbee,Austan
TI - Taxes, High-Income Executives, and the Perils of Revenue Estimation in the New Economy
JF - National Bureau of Economic Research Working Paper Series
VL - No. 7626
PY - 2000
Y2 - March 2000
DO - 10.3386/w7626
UR - http://www.nber.org/papers/w7626
L1 - http://www.nber.org/papers/w7626.pdf
N1 - Author contact info:
Austan Goolsbee
Booth School of Business
University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-5869
Fax: 773/702-0458
E-Mail: goolsbee@chicagobooth.edu
AB - This paper attempts to help explain the unforecasted, excess' personal income tax revenues of the last several years. Using panel data on executive compensation in the 1990s, it argues that because the gains on most stock options are treated as ordinary income for tax purposes, rising stock market valuations are directly tied to non-capital gains income. This blurred line between capital and wage income for has affected tax revenue in three ways, at least for these high-income people. First, stock performance has directly affected the amount of ordinary income that people report by influencing their stock option exercise decisions. Second, the presence of options gives executives more flexibility in changing the timing of their reported income and appears to make them much more sensitive to the short-run timing of tax changes, even accounting for the stock market changes of the period. Third, because of the tax rules on options, changing the capital gains tax rate, as the U.S. did in the late 1990s, can lead individuals to exercise their options early to convert the expected future gains into lower-taxed forms. The data show significant evidence of each of these effects and in all three cases, executives working in the new' economy and high-technology sectors
ER -